Fed Interest Rate Hike

If Fed increases rate, USD goes up! which means brings many company stock price around US lower.

Why? Valuation of a company [Operating profit + depreciation + amortization of goodwill – capital expenditures – cash taxes – change in working capital] gets discounted to the average weighted cost capital of a company.

And two more cases,

  1. As the interest rate increased it has higher debt expenses now
  2. And it affects the customer too, it limits customer’s purchasing ability as he has to give more interest.

So it makes the profit lower! So Stocks from US fall down!

RBI Interest Rate Decision

Similar like the Fed’s but there are tons of tiny micro factors here.

Reserve Bank of India (RBI) on Tuesday (4th Nov, 16) cut policy rate to 6.25 per cent from 6.50 per cent. The rate cut means different things to different segments. It boosts consumption. Corporate deposits looking attractive. Sensex will make high. As of I am writing it made 400+ in last two days after it was announced.

Banks will get balanced benefit. It is a very strategic point. Reason – Home loan! The EMI for getting a home will be huge time less than what it was earlier just for this small change of range which translate into more customers to the bank! Though there will be decrease in instruments like fixed deposits but instruments like home loan will surpass that.

For SBI it will surpass that. It ran a great bullish run for past 2 days! It gives the highest number of home loan in India.

For HDFC it will surpass that. It ran a great bullish run for past 2 days! But it is not as huge as SBI, ever heard of getting a home loan from Indian Bank? Nope? It decreased. So did Axis bank and small others.

But who is next after SBI? LIC Housing Finance Limited! It rocked the share market last couple days because it gives loans to Salaried Government Employees only; it is best NBFC (Non-Banking Financial Company) in terms of security.

Though overall every stock rocked. RBI seen taking dovish stance which mean the interest will be reduced for the companies having higher debt. Find some fundamentally good company which has tons of debt, like – DLF.

Buy it.

Also this monetary policy will make a bull run for car/truck making companies and real estate companies and especially pharma companies. They usually have higher debt! but check every details before investing.

When real estate is up, it’s correlated stock, i.e. cement will go up too.

So does Auto stocks like Maruti and auto ancillaries (supporting stocks like let’s say companies which make tyre or glass of car.)